Stars Group Pivots from Poker to Sports Betting, Buys SBG for $4.7 Billion

Stars Group, Inc. (TSG) has acquired Sky Betting & Gaming (SBG) from CVC Capital Partners and Sky, Plc (SKYAY) for $4.7 billion in cash and stock options, as the company pivots from online poker cardroom to sports betting operator. SBG has an established gaming presence in the U.K. (3rd largest operator) and recently expanded operations in to Italy and Germany. While SCOTUS’ pending decision on PAPSA’s constitutionality offers potential upside for TSG shareholders, CEO Rafi Ashkenazi clearly stated, “the trigger for this deal was not the U.S.”; before adding that should sports betting be legalized in the country, the company would be “very strongly positioned to capture significant market share.” TSG shares climbed 14% on the news, closing Monday at $33.45; just below their all-time high ($33.50).

Howie Long-Short: Ashkenazi has been aggressively looking to reduce TSG’s reliance on a stagnating poker business (2/3 of ’17 revenue, $2.36 billion, +7% YoY) and recently increased the company’s stake (to 80%) in Australian sports betting and gaming company, CrownBet Holdings (which acquired the Australian arm of William Hill). That’s a wise decision. In 2017, 50% of all casino winnings ($49.8 billion) came from sports betting and 26% originated from casino games, while just 6% came from poker.

Much like the DFS companies, TSG owns a valuable database of U.S. gamblers from poker’s mid-to-late aughts heyday. Combine that information with SBG’s strengths in marketing (was U.K.’s 8th largest operator in ’11, now 3rd) and technology (80% of revenue comes from mobile apps), and it becomes a particularly sensible acquisition for TSG.

Fan Marino: No European gaming company is better positioned to capitalize on legalized sports betting in the United States (particularly if SCOTUS’ decision is limited to New Jersey, for the time being), then William Hill (WIMHY). Back in ’13, the company bought the rights to run a sportsbook (and split profits 50/50) at Monmouth Park (NJ), if ever permitted by law for $1 million. It’s been a long 5 years, but a decision could come down as early as today. Should that happen, WIMHY will be taking bets at Monmouth within weeks. The company also plans to add a 2nd $5 million sportsbook on the premises.